Auctions in which Losers Set the Price

Claudio Mezzetti and Ilia Tsetlin

No 06/8, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: We study auctions of a single asset among symmetric bidders with affiliated values. We show that the second-price auction minimizes revenue among all efficient auction mechanisms in which only the winner pays, and the price only depends on the losers’ bids. In particular, we show that the k-th price auction generates higher revenue than the second-price auction, for all k > 2. If rationing is allowed, with shares of the asset rationed among the t highest bidders, then the (t + 1)-st price auction yields the lowest revenue among all auctions with rationing in which only the winners pay and the unit price only depends on the losers’ bids. Finally, we compute bidding functions and revenue of the k-th price auction, with and without rationing, for an illustrative example much used in the experimental literature to study first-price, second-price and English auctions

Keywords: Auctions; Second-Price Auction; English Auction; k-th Price Auction; Affiliated Values; Rationing; Robust Mechanism Design (search for similar items in EconPapers)
JEL-codes: D44 D82 (search for similar items in EconPapers)
Date: 2006-07, Revised 2007-03
New Economics Papers: this item is included in nep-gth and nep-mic
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Related works:
Journal Article: Auctions in which losers set the price (2009)
Working Paper: Auctions in which Losers Set the Price (2008)
Working Paper: Auctions in which Losers Set the Price (2008)
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